Non-economists often debate the merits of free trade and/or NAFTA. But if you ask economists, they are nearly unanimously in agreement in favor of both:

None of the economists surveyed disagreed that the gains to freer trade are much larger than any costs. And only two economists even said that the answer is uncertain. In a space for additional comments, MIT’s Richard Schmalensee declared “If that’s not right, almost all of economics is wrong”.

Economists have emphasized the benefits of free trade for a long time, reflecting the field’s belief in the importance of specialization, comparative advantage, and gains from trade. Indeed, these results are similar to other surveys that show economists strongly supporting free trade.

So why do pundits and voters lag economists in supporting free trade? In his excellent book The Myth of the Rational Voter, Bryan Caplan provides evidence that people suffer from a handful of systematic biases that influence their beliefs, and three of these can help explain why voters are skeptical of trade: anti-market bias, anti-foreign bias, and pessimism bias.

5 Responses to “Free Trade And NAFTA”

If GDP goes up 10%, profits for large companies go up 20%, and you see the poverty rate go from 20% to 40%, is that a gain?

Because people called Chile a gain, which it was in a sense. Profits went up. Wealthy sectors became much more wealthy. But average caloric consumption went down and of course consumption amongst the poor went down dramatically. Unemployment soared from under 4% under Allende to around 30% under Chicago School direction. Is that a gain? It can be if your goal is profits for the wealthiest investors. Your link doesn’t define gain. So I suppose I’d think they are right if they define the words the way they are often defined amongst elites.

I liked Bob Murphy’s response here. I don’t think it’s controversial that free trade improves overall welfare, but NAFTA was definitely more than just a free trade agreement. That said, it appears that Mexico has been doing better economically recently, despite many of the problems caused by the drug laws in the US.

But the unanimity here seems to be partly a function of selection bias.

Kangas distinguishes between growth that is a result of re-use of idle capacity and growth that actually causes things like additional capital expenditures. Take a look at economic growth in 1935 and 1936 in the US in one of the tables at the link. This was record growth. But it didn’t mean a lot because this is just making up for the prior downturn. In the immediate wake of NAFTA the peso collapsed and caused a crisis and downturn.

One other point. Every single economist in the poll is working at an American University. What do foreign economists think? I suppose this different perspective could produce different opinions.

To claim that record growth from one year to another doesn’t mean a lot is to impute more meaning into the data than is justified, I think. I’m not claiming that you’re wrong, but I want to make clear that it’s an assertion that isn’t self evident.

I would say that avoiding the use of GDP as a metric is a good thing. I don’t feel that it measures much that is worthwhile, especially year over year.

On a related note there is a recent book (The Roaring Thirties, reviewed here ) that claims that the 1930’s were the decade that made future growth possible. The data that supports this aren’t going to be contained in simple numbers like the GDP growth year over year.